Epicor CEO: Proposed Tax Reform Would Boost Manufacturers

The tax reform plan currently being discussed in Congressional committee could provide a big boost to U.S. companies – and in particular small and medium-sized manufacturers.

The proposed changes are likely to benefit small- to medium-sized businesses overall, as they typically have more constraints on their resources and costs of capital, according to Epicor CEO Stephen Murphy.

As a software vendor focused on serving the needs of the manufacturing sector, Epicor’s clients have been telling Murphy that while the details of the tax reforms have not yet been cast in stone, the proposed changes could provide them with new flexibility and options for moving manufacturing operations to the U.S. from overseas.

“The math is that simple in many cases—it’s a more attractive option just to make things here, assuming the bill reflects that 20 percent corporate tax rate,” Murphy told Chief Executive. “Being able to write off property, plant and equipment investments so that you lower your tax exposure, being able to bring money back if it’s been stranded overseas without paying a tax penalty and knowing that when you do earn money as a corporation here, you’re able to keep 80 percent of it as opposed to 55, those are all very significant benefits.”

Here’s a look at three areas in which manufacturers could benefit from tax reforms.

Reduction of corporate tax rates.

By bringing the corporate tax rate down to 20 percent from the current 35 percent, more manufacturers who are producing overseas could be swayed to bring production back home to the U.S.

“Labor costs are high, and if you’re going to put people to work here you’ve got to have a highly-productive factory.” – Epicor CEO Stephen Murphy

“It makes it a lot easier for a domestic manufacturer to say that while they have a slightly higher tax exposure at 20 percent [than in some overseas countries], it’s a small enough delta that they can make up for it in productivity, or being closer to home or closer to where the demand is for their products,” Murphy told Chief Executive.

Repatriation of corporate cash back to the U.S.

The proposed reforms would also allow all overseas assets from U.S.-owned companies to be repatriated and taxed at a one-time lower rate of 12 percent, as opposed to 35 percent. Bringing these funds back to the U.S. would allow companies to invest it in their businesses, according to Murphy.

For manufacturers, that could mean investing in property, plants and equipment for new facilities.

“If you’re going to bring it back, you’ve got to do it right. For a lot of these companies, to manufacture domestically you’ve got to build out a high-tech plant,” Murphy says. “Labor costs are high, and if you’re going to put people to work here you’ve got to have a highly-productive factory. So, typically, bringing that money back is going to be used for property, plant and equipment—it has got to be if you’re going to build out plants properly.”

Immediate expensing of U.S. capital investments.

Lawmakers are also weighing a provision that would allow for the immediate expensing of capital investments for a period of five years, which would provide capital-intensive businesses with a boost.

The provision could impact different businesses in different ways, however.

“You have some companies that probably like the ability to capitalize something and then write it off over a longer period of time because they can spread out the hit to income,” Murphy says. “The degree to which the government gets aggressive and allows the write-off or not is going to vary company by company.”

The details bear watching as Congress hammers out the specifics in the coming weeks, but the end results could prove fruitful for manufacturers if these big bullet points remain in the tax reform bill.

CEO CONFIDENCE INDEX

Chief Executive’s most recent reading of CEO confidence in future business conditions slipped from 7 out of 10 in October to 6.9 in November. It was a new low for 2018 as business leaders begin to prepare for a possible downturn ahead.

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